Half of all teenagers in England and Wales are being failed by secondary schools that focus on brighter children destined to go on to higher education, according to a damning new report from the thinktank Demos.

The report, The Forgotten Half, claims that secondary schools routinely neglect pupils with vocational aspirations, offering minimal careers advice and little help in finding the type of jobs that would suit them. "Our schools are teaching just half of the population," said one of the report's authors, Jonathan Birdwell.

"The education system needs to be less focused on pushing young people through the hoops of assessment that lead on to higher education, and more on equipping them with the skills to enter and progress through the labour market," he added.

One of the key findings of the research is that many of the vocational qualifications that children are encouraged to aim for turn out to be worthless. "That was one thing that really shocked me," said Birdwell.

Work-related learning was found to be low quality and young people failed to benefit from compulsory work experience due to poor links with local businesses and a failure to relate work experience to lessons given in the classroom. Schools were also found to undervalue the importance of part-time work, after-school clubs and volunteering in building up young people's skills, experience and their CVs.

The lack of preparation, the report claims, is an important contributory factor to rising youth unemployment in the UK and the emergence of the Neet – the 16- to 18-year-old who is not in education, employment or training.

The recommendations of the report include requiring Ofsted to make careers advice and employer engagement into key components of assessing schools and colleges; to improve the work-experience opportunity; and to actively discourage young people from studying NVQ at levels 1 and 2 or taking up other low-level vocational qualifications that have little labour market value and lead to low wages.

"[This report] really brings you up short," said Shaks Ghosh, chief executive of the Private Equity Foundation (PEF), a venture philanthropy fund that works to support disadvantaged children and empowers young people to reach their full potential. [It's shocking] even for people like me who have worked in the charity sector all our lives and are used to sections of the community being disadvantaged. Failing half of young people? That's a bit scary."

The foundation is particularly concerned with the Neet phenomenon, said Ghosh. "In July, a whole generation of school-leavers are coming out into unemployment, and they face a real possibility of remaining jobless. They are heading for the scrapheap.

"The chances of a graduate becoming unemployed are something like 10%, but if you leave school without any qualifications or if your qualifications are just an NVQ 1 or 2 or something else that is more than worthless, then your chances of being unemployed are 30%."

She said mentoring schemes were now commonplace in European countries and were essential, and so too were business partnerships with schools.

This month Demos warned of a boom in Neets as research found that the numbers could reach 1.2 million by 2015. In England, 8% of children leave primary school with very low levels of literacy and/or numeracy. The percentage of young people reaching expected levels for writing at 11, having risen from 54% in 1999 to 67% in 2006, has levelled off at 67% between 2006 and 2009.

At secondary school, only 57% of young people achieved five A*–C grades in maths at GCSE and only 27% of young people on free school meals achieved five A*–C grades including maths and English.